TEXAS INSTRUMENTS INC 10-Q

ITEM 1. Financial statements For Three Months Ended For Nine Months Ended Consolidated Statements of Income September 30, September 30, (Millions of dollars, except share and per-share amounts) 2021 2020 2021 2020 Revenue $ 4,643 $ 3,817 $ 13,512 $ 10,385 Cost of revenue (COR) 1,491 1,364 4,486 3,762 Gross profit 3,152 2,453 9,026 6,623 Research and development (R&D) 388 386 1,165 1,142 Selling, general and administrative (SG&A) 412 407 1,262 1,225 Acquisition charges 47 51 142 151 Restructuring charges/other — — — 24 Operating profit 2,305 1,609 6,457 4,081 Other income (expense), net (OI&E) 15 27 134 151 Interest and debt expense 45 49 135 142 Income before income taxes 2,275 1,587 6,456 4,090 Provision for income taxes 328 234 825 183 Net income $ 1,947 $ 1,353 $ 5,631 $ 3,907 Earnings per common share (EPS): Basic $ 2.10 $ 1.47 $ 6.08 $ 4.22 Diluted $ 2.07 $ 1.45 $ 5.99 $ 4.17 Average shares outstanding (millions): Basic 923 917 923 921 Diluted 936 929 936 933 A portion of net income is allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents. Diluted EPS is calculated using the following: Net income $ 1,947 $ 1,353 $ 5,631 $ 3,907 Income allocated to RSUs ( 9 ) ( 6 ) ( 24 ) ( 19 ) Income allocated to common stock for diluted EPS $ 1,938 $ 1,347 $ 5,607 $ 3,888 See accompanying notes. 2 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES For Three Months Ended For Nine Months Ended Consolidated Statements of Comprehensive Income September 30, September 30, (Millions of dollars) 2021 2020 2021 2020 Net income $ 1,947 $ 1,353 $ 5,631 $ 3,907 Other comprehensive income (loss) Net actuarial losses of defined benefit plans: Adjustments, net of tax effect of ($ 1 ) and $ 3 ; ($ 8 ) and $ 4 3 ( 7 ) 24 ( 8 ) Recognized within net income, net of tax effect of ($ 2 ) and ($ 2 ); ($ 7 ) and ($ 7 ) 8 7 24 21 Prior service credit of defined benefit plans: Recognized within net income, net of tax effect of $ 0 and $ 0 ; $ 0 and $ 0 ( 1 ) ( 1 ) ( 1 ) ( 1 ) Other comprehensive income (loss), net of taxes 10 ( 1 ) 47 12 Total comprehensive income $ 1,957 $ 1,352 $ 5,678 $ 3,919 See accompanying notes. 3 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES September 30, December 31, Consolidated Balance Sheets 2021 2020 (Millions of dollars, except share amounts) Assets Current assets: Cash and cash equivalents $ 5,663 $ 3,107 Short-term investments 4,119 3,461 Accounts receivable, net of allowances of ($ 9 ) and ($ 11 ) 1,653 1,414 Raw materials 224 180 Work in process 1,034 964 Finished goods 605 811 Inventories 1,863 1,955 Prepaid expenses and other current assets 287 302 Total current assets 13,585 10,239 Property, plant and equipment at cost 6,661 5,781 Accumulated depreciation ( 2,640 ) ( 2,512 ) Property, plant and equipment 4,021 3,269 Goodwill 4,362 4,362 Acquisition-related intangibles 9 152 Deferred tax assets 309 343 Capitalized software licenses 88 122 Overfunded retirement plans 252 246 Other long-term assets 647 618 Total assets $ 23,273 $ 19,351 Liabilities and stockholders’ equity Current liabilities: Current portion of long-term debt $ 500 $ 550 Accounts payable 596 415 Accrued compensation 665 767 Income taxes payable 101 134 Accrued expenses and other liabilities 551 524 Total current liabilities 2,413 2,390 Long-term debt 7,239 6,248 Underfunded retirement plans 129 131 Deferred tax liabilities 86 90 Other long-term liabilities 1,255 1,305 Total liabilities 11,122 10,164 Stockholders’ equity: Preferred stock, $ 25 par value. Authorized – 10,000,000 shares; none issued — — Common stock, $ 1 par value. Authorized – 2,400,000,000 shares Shares issued – 1,740,815,939 1,741 1,741 Paid-in capital 2,563 2,333 Retained earnings 44,847 42,051 Treasury common stock at cost Shares: September 30, 2021 – 817,400,928 ; December 31, 2020 – 821,461,787 ( 36,687 ) ( 36,578 ) Accumulated other comprehensive income (loss), net of taxes (AOCI) ( 313 ) ( 360 ) Total stockholders’ equity 12,151 9,187 Total liabilities and stockholders’ equity $ 23,273 $ 19,351 See accompanying notes. 4 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES For Nine Months Ended Consolidated Statements of Cash Flows September 30, (Millions of dollars) 2021 2020 Cash flows from operating activities Net income $ 5,631 $ 3,907 Adjustments to net income: Depreciation 555 553 Amortization of acquisition-related intangibles 142 151 Amortization of capitalized software 44 45 Stock compensation 180 182 Gains on sales of assets ( 7 ) ( 3 ) Deferred taxes 19 ( 115 ) Increase (decrease) from changes in: Accounts receivable ( 239 ) ( 318 ) Inventories 92 ( 71 ) Prepaid expenses and other current assets 99 — Accounts payable and accrued expenses 87 60 Accrued compensation ( 103 ) ( 48 ) Income taxes payable ( 54 ) ( 316 ) Changes in funded status of retirement plans 48 16 Other ( 95 ) ( 29 ) Cash flows from operating activities 6,399 4,014 Cash flows from investing activities Capital expenditures ( 1,180 ) ( 437 ) Proceeds from asset sales 7 3 Purchases of short-term investments ( 6,427 ) ( 3,435 ) Proceeds from short-term investments 5,770 3,958 Other ( 36 ) ( 15 ) Cash flows from investing activities ( 1,866 ) 74 Cash flows from financing activities Proceeds from issuance of long-term debt 1,495 1,498 Repayment of debt ( 550 ) ( 500 ) Dividends paid ( 2,824 ) ( 2,489 ) Stock repurchases ( 385 ) ( 2,538 ) Proceeds from common stock transactions 325 356 Other ( 38 ) ( 30 ) Cash flows from financing activities ( 1,977 ) ( 3,703 ) Net change in cash and cash equivalents 2,556 385 Cash and cash equivalents at beginning of period 3,107 2,437 Cash and cash equivalents at end of period $ 5,663 $ 2,822 See accompanying notes. 5 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Notes to financial statements 1. Description of business, including segment and geographic area information We design, make and sell semiconductors to electronics designers and manufacturers all over the world. We have two reportable segments, Analog and Embedded Processing, each of which represents groups of similar products that are combined on the basis of similar design and development requirements, product characteristics, manufacturing processes and distribution channels. • Analog semiconductors change real-world signals, such as sound, temperature, pressure or images, by conditioning them, amplifying them and often converting them to a stream of digital data that can be processed by other semiconductors, such as embedded processors. Analog semiconductors are also used to manage power in all electronic equipment by converting, distributing, storing, discharging, isolating and measuring electrical energy, whether the equipment is plugged into a wall or using a battery. Our Analog segment consists of two major product lines: Power and Signal Chain. • Embedded Processing products are the digital “brains” of many types of electronic equipment. They are designed to handle specific tasks and can be optimized for various combinations of performance, power and cost, depending on the application. We report the results of our remaining business activities in Other. Other includes operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments. Other includes DLP ® products, calculators and custom ASIC products. Our centralized manufacturing and support organizations, such as facilities, procurement and logistics, provide support to our operating segments, including those in Other. Costs incurred by these organizations, including depreciation, are charged to the segments on a per-unit basis. Consequently, depreciation expense is not an independently identifiable component within the segments’ results and, therefore, is not provided. Segment information For Three Months Ended For Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenue: Analog $ 3,548 $ 2,865 $ 10,292 $ 7,759 Embedded Processing 738 651 2,285 1,850 Other 357 301 935 776 Total revenue $ 4,643 $ 3,817 $ 13,512 $ 10,385 Operating profit: Analog $ 1,871 $ 1,320 $ 5,295 $ 3,398 Embedded Processing 282 187 881 494 Other (a) 152 102 281 189 Total operating profit $ 2,305 $ 1,609 $ 6,457 $ 4,081 (a) Includes acquisition charges and restructuring charges/other 6 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Geographic area information The following geographic area information includes revenue, based on product shipment destination. The geographic revenue information does not necessarily reflect end demand by geography because our products tend to be shipped to the locations where our customers manufacture their products. For Three Months Ended For Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenue: United States $ 515 $ 440 $ 1,437 $ 1,179 Asia (a) 3,082 2,555 8,933 6,756 Europe, Middle East and Africa 683 578 2,061 1,648 Japan 242 140 716 523 Rest of world 121 104 365 279 Total revenue $ 4,643 $ 3,817 $ 13,512 $ 10,385 (a) Revenue from products shipped into China was $ 2.5 billion and $ 2.2 billion in the third quarters of 2021 and 2020, respectively, and $ 7.3 billion and $ 5.7 billion in the first nine months of 2021 and 2020, respectively, which includes shipments to customers that manufacture in China and then export end products to their customers around the world, as well as distributors that transship inventory through China to service other countries. 2. Basis of presentation and significant accounting policies and practices Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and on the same basis as the audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2020. The Consolidated Statements of Income, Comprehensive Income and Cash Flows for the periods ended September 30, 2021 and 2020, and the Consolidated Balance Sheet as of September 30, 2021, are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Because the consolidated interim financial statements do not include all of the information and notes required by GAAP for a complete set of financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in our annual report on Form 10-K for the year ended December 31, 2020. The results for the three- and nine-month periods are not necessarily indicative of a full year’s results. Significant accounting policies and practices Earnings per share (EPS) We use the two-class method for calculating EPS because the restricted stock units (RSUs) we grant are participating securities containing non-forfeitable rights to receive dividend equivalents. Under the two-class method, a portion of net income is allocated to RSUs and excluded from the calculation of income allocated to common stock. 7 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Computation and reconciliation of earnings per common share are as follows (shares in millions): For Three Months Ended September 30, 2021 2020 Net Income Shares EPS Net Income Shares EPS Basic EPS: Net income $ 1,947 $ 1,353 Income allocated to RSUs ( 9 ) ( 6 ) Income allocated to common stock $ 1,938 923 $ 2.10 $ 1,347 917 $ 1.47 Dilutive effect of stock compensation plans 13 12 Diluted EPS: Net income $ 1,947 $ 1,353 Income allocated to RSUs ( 9 ) ( 6 ) Income allocated to common stock $ 1,938 936 $ 2.07 $ 1,347 929 $ 1.45 For Nine Months Ended September 30, 2021 2020 Net Income Shares EPS Net Income Shares EPS Basic EPS: Net income $ 5,631 $ 3,907 Income allocated to RSUs ( 23 ) ( 19 ) Income allocated to common stock $ 5,608 923 $ 6.08 $ 3,888 921 $ 4.22 Dilutive effect of stock compensation plans 13 12 Diluted EPS: Net income $ 5,631 $ 3,907 Income allocated to RSUs ( 24 ) ( 19 ) Income allocated to common stock $ 5,607 936 $ 5.99 $ 3,888 933 $ 4.17 Potentially dilutive securities representing 2 million and 3 million shares of common stock that were outstanding during the third quarters of 2021 and 2020, respectively, and 3 million and 4 million shares outstanding during the first nine months of 2021 and 2020, respectively, were excluded from the computation of diluted earnings per common share during these periods because their effect would have been anti-dilutive. Derivatives and hedging We use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments. We are exposed to variability in compensation charges related to certain deferred compensation obligations to employees. We use total return swaps to economically hedge this exposure and offset the related compensation expense, recognizing changes in the value of the swaps and the related deferred compensation liabilities in SG&A. In connection with the issuance of long-term debt, we may use financial derivatives such as treasury-rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions have not been material. We do not use derivatives for speculative or trading purposes. 8 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Fair values of financial instruments The fair values of our derivative financial instruments were not material as of September 30, 2021. Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our deferred compensation liabilities, are carried at fair value. The carrying values for other current financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of such instruments. As of September 30, 2021, the carrying value of long-term debt, including the current portion, was $ 7.74 billion, and the estimated fair value was $ 8.43 billion. The estimated fair value is measured using broker-dealer quotes, which are Level 2 inputs. See Note 4 for a description of fair value and the definition of Level 2 inputs. 3. Income taxes Our estimated annual effective tax rate is about 14 %, which does not include discrete tax items. This differs from the 21 % U.S. statutory corporate tax rate due to the effect of U.S. tax benefits. Provision for income taxes is based on the following: For Three Months Ended For Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Taxes calculated using the estimated annual effective tax rate $ 337 $ 231 $ 934 $ 561 Discrete tax items ( 9 ) 3 ( 109 ) ( 378 ) Provision for income taxes $ 328 $ 234 $ 825 $ 183 Effective tax rate 14 % 15 % 13 % 4 % Our provision for income taxes for the first nine months of 2020 included a $ 249 million discrete tax benefit for the settlement of a depreciation-related uncertain tax position. Accrued interest of $ 46 million related to this uncertain tax position was reversed and included in OI&E. 4. Valuation of debt and equity investments and certain liabilities Investments measured at fair value Available-for-sale debt investments, money market funds and mutual funds are stated at fair value, which is generally based on market prices or broker quotes. See Fair-value considerations below. Unrealized gains and losses from available-for-sale debt securities are recorded as an increase or decrease, net of taxes, in AOCI on our Consolidated Balance Sheets and any credit losses on available-for-sale debt securities are recorded as an allowance for credit losses with an offset recognized in OI&E in our Consolidated Statements of Income. Our mutual funds hold a variety of debt and equity investments intended to generate returns that offset changes in certain deferred compensation liabilities. We record changes in the fair value of these mutual funds and the related deferred compensation liabilities in SG&A. Other investments Our other investments include equity-method investments and non-marketable equity investments, which are not measured at fair value. These investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from equity-method investments are recognized in OI&E based on our ownership share of the investee’s financial results. Non-marketable equity securities are measured at cost with adjustments for observable changes in price or impairments. Gains and losses on non-marketable equity investments are recognized in OI&E. 9 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Details of our investments are as follows: September 30, 2021 December 31, 2020 Cash and Cash Equivalents Short-Term Investments Long-Term Investments Cash and Cash Equivalents Short-Term Investments Long-Term Investments Measured at fair value: Money market funds $ 2,132 $ — $ — $ 886 $ — $ — Corporate obligations 1,136 1,109 — 256 257 — U.S. government and agency securities 1,140 2,587 — 1,340 3,054 — Non-U.S. government and agency securities 385 423 — — 150 — Mutual funds — — 15 — — 18 Total 4,793 4,119 15 2,482 3,461 18 Other measurement basis: Equity-method investments — — 54 — — 27 Non-marketable equity investments — — 4 — — 4 Cash on hand 870 — — 625 — — Total $ 5,663 $ 4,119 $ 73 $ 3,107 $ 3,461 $ 49 As of September 30, 2021, and December 31, 2020, unrealized gains and losses associated with our available-for-sale investments were not material. We did no t recognize any credit losses related to available-for-sale investments for the first nine months of 2021 and 2020. All of our debt securities classified as available for sale as of September 30, 2021, have maturities within one year. Proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $ 1.32 billion and $ 510 million for the third quarters of 2021 and 2020, respectively, and $ 5.77 billion and $ 3.71 billion for the first nine months of 2021 and 2020, respectively. Gross realized gains and losses from these sales were not material. During the first nine months of 2020, we entered into total return swaps to economically hedge the variability of certain deferred compensation obligations to employees. As a result, we received proceeds of $ 253 million from the sale of investments in mutual funds that were previously being utilized to offset this exposure. Fair-value considerations We measure and report certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level hierarchy described below indicates the extent and level of judgment used to estimate fair-value measurements. • Level 1 – Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. • Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data. We utilize a third-party data service to provide Level 2 valuations. We verify these valuations for reasonableness relative to unadjusted quotes obtained from brokers or dealers based on observable prices for similar assets in active markets. • Level 3 – Uses inputs that are unobservable, supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models that utilize management estimates of market participant assumptions. As of September 30, 2021, and December 31, 2020, we had no Level 3 assets or liabilities. 10 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES The following are our assets and liabilities that were accounted for at fair value on a recurring basis. These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at historical cost or any basis other than fair value. September 30, 2021 December 31, 2020 Level 1 Level 2 Total Level 1 Level 2 Total Assets: Money market funds $ 2,132 $ — $ 2,132 $ 886 $ — $ 886 Corporate obligations — 2,245 2,245 — 513 513 U.S. government and agency securities 3,326 401 3,727 4,394 — 4,394 Non-U.S. government and agency securities — 808 808 — 150 150 Mutual funds 15 — 15 18 — 18 Total assets $ 5,473 $ 3,454 $ 8,927 $ 5,298 $ 663 $ 5,961 Liabilities: Deferred compensation $ 367 $ — $ 367 $ 350 $ — $ 350 Total liabilities $ 367 $ — $ 367 $ 350 $ — $ 350 5. Postretirement benefit plans Expenses related to defined benefit and retiree health care benefit plans are as follows: U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit For Three Months Ended September 30, 2021 2020 2021 2020 2021 2020 Service cost $ 5 $ 5 $ — $ 1 $ 9 $ 9 Interest cost 8 7 3 3 9 9 Expected return on plan assets ( 8 ) ( 9 ) ( 2 ) ( 2 ) ( 20 ) ( 20 ) Recognized net actuarial loss 3 1 — — 2 4 Amortization of prior service cost (credit) — — ( 1 ) ( 1 ) — — Net periodic benefit costs 8 4 — 1 — 2 Settlement losses 4 3 — — 1 1 Total, including other postretirement losses $ 12 $ 7 $ — $ 1 $ 1 $ 3 U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit For Nine Months Ended September 30, 2021 2020 2021 2020 2021 2020 Service cost $ 16 $ 14 $ 2 $ 2 $ 27 $ 25 Interest cost 23 24 8 9 28 28 Expected return on plan assets ( 25 ) ( 27 ) ( 8 ) ( 8 ) ( 61 ) ( 58 ) Recognized net actuarial loss 11 5 — — 6 11 Amortization of prior service cost (credit) — — ( 1 ) ( 1 ) — — Net periodic benefit costs 25 16 1 2 — 6 Settlement losses 12 10 — — 2 2 Total, including other postretirement losses $ 37 $ 26 $ 1 $ 2 $ 2 $ 8 6. Debt and lines of credit Short-term borrowings We maintain a line of credit to support commercial paper borrowings, if any, and to provide additional liquidity through bank loans. As of September 30, 2021, we had a variable-rate revolving credit facility from a consortium of investment-grade banks that allows us to borrow up to $ 2 billion until March 2024. The interest rate on borrowings under this credit facility, if drawn, is indexed to the applicable London Interbank Offered Rate (LIBOR). As of September 30, 2021, our credit facility was undrawn, and we had no commercial paper outstanding. 11 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Long-term debt In September 2021, we issued three series of senior unsecured notes for an aggregate principal amount of $ 1.50 billion, consisting of: • $ 500 million of 1.125 % notes due in 2026; • $ 500 million of 1.90 % notes due in 2031; and • $ 500 million of 2.70 % notes due in 2051. We incurred $ 10 million of issuance costs. The proceeds of the offering were $ 1.50 billion, net of the original issuance discounts, which will be used for general corporate purposes. In February 2021, we retired $ 550 million of maturing debt. Long-term debt outstanding is as follows: September 30, December 31, 2021 2020 Notes due 2021 at 2.75 % $ — $ 550 Notes due 2022 at 1.85 % 500 500 Notes due 2023 at 2.25 % 500 500 Notes due 2024 at 2.625 % 300 300 Notes due 2025 at 1.375 % 750 750 Notes due 2026 at 1.125 % 500 — Notes due 2027 at 2.90 % 500 500 Notes due 2029 at 2.25 % 750 750 Notes due 2030 at 1.75 % 750 750 Notes due 2031 at 1.90 % 500 — Notes due 2039 at 3.875 % 750 750 Notes due 2048 at 4.15 % 1,500 1,500 Notes due 2051 at 2.70 % 500 — Total debt 7,800 6,850 Net unamortized discounts, premiums and issuance costs ( 61 ) ( 52 ) Total debt, including net unamortized discounts, premiums and issuance costs 7,739 6,798 Current portion of long-term debt ( 500 ) ( 550 ) Long-term debt $ 7,239 $ 6,248 Interest and debt expense was $ 45 million and $ 49 million for the third quarters of 2021 and 2020, respectively, and $ 135 million and $ 142 million for the first nine months of 2021 and 2020, respectively. This was net of the amortized discounts, premiums and issuance costs. Capitalized interest was not material. 12 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES 7. Stockholders’ equity Changes in equity are as follows: Common Stock Paid-in Capital Retained Earnings Treasury Common Stock AOCI Balance, December 31, 2020 $ 1,741 $ 2,333 $ 42,051 $ ( 36,578 ) $ ( 360 ) 2021 Net income — — 1,753 — — Dividends declared and paid ($ 1.02 per share) — — ( 940 ) — — Common stock issued for stock-based awards — ( 3 ) — 199 — Stock repurchases — — — ( 100 ) — Stock compensation — 61 — — — Other comprehensive income (loss), net of taxes — — — — 13 Dividend equivalents on RSUs — — ( 4 ) — — Balance, March 31, 2021 1,741 2,391 42,860 ( 36,479 ) ( 347 ) Net income — — 1,931 — — Dividends declared and paid ($ 1.02 per share) — — ( 942 ) — — Common stock issued for stock-based awards — 25 — 29 — Stock repurchases — — — ( 146 ) — Stock compensation — 69 — — — Other comprehensive income (loss), net of taxes — — — — 24 Dividend equivalents on RSUs — — ( 4 ) — — Other — — 1 — — Balance, June 30, 2021 1,741 2,485 43,846 ( 36,596 ) ( 323 ) Net income — — 1,947 — — Dividends declared and paid ($ 1.02 per share) — — ( 942 ) — — Common stock issued for stock-based awards — 27 — 48 — Stock repurchases — — — ( 139 ) — Stock compensation — 50 — — — Other comprehensive income (loss), net of taxes — — — — 10 Dividend equivalents on RSUs — — ( 3 ) — — Other — 1 ( 1 ) — — Balance, September 30, 2021 $ 1,741 $ 2,563 $ 44,847 $ ( 36,687 ) $ ( 313 ) 13 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES Common Stock Paid-in Capital Retained Earnings Treasury Common Stock AOCI Balance, December 31, 2019 $ 1,741 $ 2,110 $ 39,898 $ ( 34,495 ) $ ( 347 ) 2020 Net income — — 1,174 — — Dividends declared and paid ($ 0.90 per share) — — ( 841 ) — — Common stock issued for stock-based awards — ( 77 ) — 223 — Stock repurchases — — — ( 1,730 ) — Stock compensation — 63 — — — Other comprehensive income (loss), net of taxes — — — — 19 Dividend equivalents on RSUs — — ( 4 ) — — Balance, March 31, 2020 1,741 2,096 40,227 ( 36,002 ) ( 328 ) Net income — — 1,380 — — Dividends declared and paid ($ 0.90 per share) — — ( 823 ) — — Common stock issued for stock-based awards — 17 — 70 — Stock repurchases — — — ( 793 ) — Stock compensation — 69 — — — Other comprehensive income (loss), net of taxes — — — — ( 6 ) Dividend equivalents on RSUs — — ( 4 ) — — Balance, June 30, 2020 1,741 2,182 40,780 ( 36,725 ) ( 334 ) Net income — — 1,353 — — Dividends declared and paid ($ 0.90 per share) — — ( 825 ) — — Common stock issued for stock-based awards — 26 — 97 — Stock repurchases — — — ( 15 ) — Stock compensation — 50 — — — Other comprehensive income (loss), net of taxes — — — — ( 1 ) Dividend equivalents on RSUs — — ( 3 ) — — Other — ( 1 ) — — — Balance, September 30, 2020 $ 1,741 $ 2,257 $ 41,305 $ ( 36,643 ) $ ( 335 ) 8. Contingencies Indemnification guarantees We routinely sell products with an intellectual property indemnification included in the terms of sale. Historically, we have had only minimal, infrequent losses associated with these indemnities. Consequently, we cannot reasonably estimate any future liabilities that may result. Warranty costs/product liabilities We accrue for known product-related claims if a loss is probable and can be reasonably estimated. During the periods presented, there have been no material accruals or payments regarding product warranty or product liability. Historically, we have experienced a low rate of payments on product claims. Although we cannot predict the likelihood or amount of any future claims, we do not believe they will have a material adverse effect on our financial condition, results of operations or liquidity. Our stated warranties for semiconductor products obligate us to repair, replace or credit the purchase price of a covered product back to the buyer. Product claim consideration may exceed the price of our products. 14 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES General We are subject to various legal and administrative proceedings. Although it is not possible to predict the outcome of these matters, we believe that the results of these proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity. 9. Supplemental financial information Property, plant and equipment at cost In October 2021, we completed our acquisition of Micron Technology’s 300-millimeter semiconductor factory in Lehi, Utah, for cash consideration of about $ 900 million. Details on amounts reclassified out of accumulated other comprehensive income (loss), net of taxes, to net income Our Consolidated Statements of Comprehensive Income include items that have been recognized within net income during the third quarters and first nine months of 2021 and 2020. The table below details where these transactions are recorded in our Consolidated Statements of Income. For Three Months Ended For Nine Months Ended Impact to Related Statement of Income Lines September 30, September 30, 2021 2020 2021 2020 Net actuarial losses of defined benefit plans: Recognized net actuarial loss and settlement losses (a) $ 10 $ 9 $ 31 $ 28 Decrease to OI&E Tax effect ( 2 ) ( 2 ) ( 7 ) ( 7 ) Decrease to provision for income taxes Recognized within net income, net of taxes $ 8 $ 7 $ 24 $ 21 Decrease to net income Prior service credit of defined benefit plans: Amortization of prior service credit (a) $ ( 1 ) $ ( 1 ) $ ( 1 ) $ ( 1 ) Increase to OI&E Tax effect — — — — Increase to provision for income taxes Recognized within net income, net of taxes $ ( 1 ) $ ( 1 ) $ ( 1 ) $ ( 1 ) Increase to net income (a) Detailed in Note 5. Stock compensation Total shares of 1,064,600 and 6,163,997 were issued from treasury shares during the third quarter and first nine months of 2021, respectively, related to stock compensation. 15